COVID-19: Will Insurers Cover Losses Due to a Stoppage of Business? – How My Existing Policy Will Be Applied
Over the last several weeks, the coronavirus, more specifically identified as COVID-19, has meaningfully impacted nearly every facet of American daily life. Businesses are among those hardest hit by state and local shelter in place orders and the closure of all but essential businesses. As such, many business owners will look to their property insurance policies to recoup at least some of their losses due to a stoppage in business.
Typically, the first insurance claim a business files when there’s a stoppage in business is a business interruption claim. This type of coverage affords protection against losses incurred when a company is unable to conduct business during its regular hours due to a hazard or peril. COVID-19 would seemingly fit this bill. However, in order to successfully invoke a business interruption claim, property policies often require there be a “direct physical loss or damage” to the covered property. Insurers will likely argue that where a business has merely been shut down, but is not otherwise physically damaged, the direct physical loss or damage element has not been met. But, if it can be proven that the property became contaminated or uninhabitable as result of COVID-19, then the business has a strong basis to argue that there is a direct physical loss or damage to property.
Similar coverage contained in some insurance policies is for contingent business interruption. This coverage affords protection to the insured when there is damage to the property of a third party involved in business with the insured (e.g., a supplier or vendor) and the damage prohibits the insured from conducting its regular business. However, contingent business interruption also generally requires there be a direct physical loss or damage to the property of the third party. And sometimes, the coverage will be limited to specifically-identified suppliers or purchasers. If you have this coverage, it is crucial to review the exact parameters of your policy to know whether you have a valid claim.
It is important to note that all hazards or perils may not be covered by every business interruption or contingent business interruption policy. In fact, it is becoming more commonplace for insurers to specifically exclude from coverage under these policies any losses incurred by communicable diseases. If a business finds itself in this position, all hope is not lost. There may be other avenues for it to recoup its losses via its existing insurance coverage. For example, some policies allow for the recovery of losses caused by an act of “civil authority.” This could take the shape of a state- or city-wide mandate that temporarily closes certain businesses. The City of Atlanta is among the 10 cities which, along with 17 states and 26 counties, have already issued such mandates, and signs show many other jurisdictions plan to follow suit. If this is the case, losses incurred for the duration of the mandated shutdown could well be recoverable. Another option that may soon be at some businesses’ disposal involves legislative efforts to expand currently-existing business interruption policies to cover losses attributable to COVID-19. Already, a group of bipartisan members of the U.S. House of Representatives have called on leading insurance trade organizations to expand business interruption coverage.[1] And at the state level, New Jersey lawmakers are actively working with insurance carriers on a bill which, at least in part, seeks to retroactively expand business interruption policies to COVID-19-related losses.[2] It remains to be seen how successful these efforts will be, but they should continue mounting for the foreseeable future.
As is always the case with insurance policies, the devil is in the details. This article highlights the general points to consider when it comes to understanding property insurance coverage for COVID-19 related losses, but of course, every case is different. You should review the specifics of your policy, the facts giving rise to your claim, and the quickly changing legal and legislative landscape and consult with a professional if you have questions.
[1] Suzanne Barlyn, U.S. Lawmakers Push Insurers to Cover Coronavirus Business Losses, Reuters (Mar. 20, 2020), https://www.reuters.com/article/us-health-coronavirus-insurance/u-s-lawmakers-push-insurers-to-cover-coronavirus-business-losses-idUSKBN2173MD.
[2] Alex Purvis & Heather Howell Wright, New Jersey to Legislate Business Interruption Coverage for COVID-19, JDSUPRA (Mar. 21, 2020), https://www.jdsupra.com/legalnews/new-jersey-to-legislate-business-98158/.
